Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

[flintlock]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

We may want to wait and deal with the new owners.

[ASH]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

What should we make of our precessing world? From my recent travels to Asia, Europe, and across US, and from conversations with contacts around the world, the picture is at once promising and terrifying. Thus begins a long series I've titled "Global Monetary Meltdown." This is Part I of N, the first of an indeterminate many, that tracks the progression of processes that I started to explain here since 1998, as we get down to the short strokes in the final years.

The end cannot be but two years off at most. Our outmoded US-centric monetary system and debt financed FIRE Economy are disintegrating under the weight of inflation taxes that are a consequence of private sector debt bailouts, the moving of private debt to public account, and a rigidly distorted energy infrastructure that depends on cheap oil. The final stages, that we hedged with gold bought in 2001 at $265 per ounce, are upon us.


- Eric Janszen, April 2011

No one has commented on this specific statement yet. This is EJ making a rather definite call regarding the time table for the end of "our outmoded US-centric monetary system and debt financed FIRE Economy."

If the end of a US-centric monetary system requires that the US stop running large external deficits, and the US government stop running large budget deficits, within two years, then this prediction has massive practical ramifications. Likewise, if we are obliged to cease pursuing credit-driven asset bubble-based growth. I suppose the clarification to be sought is whether "the end" refers to "the end of the beginning", or rather to "the end of the process". My understanding is that EJ thinks we've been in the process for many years now, so I presume he actually means the end of the process is approaching.

Big questions arise for the worker. The investor might ask "how do I play this, or protect my accumulated assets"? But the worker must ask "will I still be employed -- and what employment opportunities will exist -- if trade and fiscal adjustment is rapid rather than gradual?"

[c1ue]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

No one has commented on this specific statement yet. This is EJ making a rather definite call regarding the time table for the end of "our outmoded US-centric monetary system and debt financed FIRE Economy."

To be fair, iTulip and EJ have long looked at 2013 at the definite year in which a weak and artificial recovery will relapse into recession - with all the attendant fiscal issues arising from the massive accumulation of debt both on private (individual) and public balance sheets.

[jk]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

No one has commented on this specific statement yet. This is EJ making a rather definite call regarding the time table for the end of "our outmoded US-centric monetary system and debt financed FIRE Economy."

If the end of a US-centric monetary system requires that the US stop running large external deficits, and the US government stop running large budget deficits, within two years, then this prediction has massive practical ramifications. Likewise, if we are obliged to cease pursuing credit-driven asset bubble-based growth. I suppose the clarification to be sought is whether "the end" refers to "the end of the beginning", or rather to "the end of the process". My understanding is that EJ thinks we've been in the process for many years now, so I presume he actually means the end of the process is approaching.

i assume this is the timing for the onset of the next crisis. i rather doubt all the imbalances will be righted in an instant, or a year.

[Serge_Tomiko]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

An excellent acknowledgement of realpolitik.

But what is my point? EJ is simply so corrupted by political correctness he does not see the absurdity of his words.

In 1933, Germany was a nation geographically about the size of Texas wi, th 60 million people. The unemployment rate was crushing. The country had no industry. Its only significant natural resource was coal, which was under military occupation. In six years, that country was capable of fighting the combined forces of the British Empire and the Soviet Union - the two largest empires ever to have existed on this earth. The fought them, and later the United States, for almost six years and arguably could have won had they adopted the brutal methods of their enemies. Nearly every battle was against overwhelming odds. What victories they achieved came from discipline, tactical skill, and tremendous ingenuity on many levels.

How is that lunacy?

One need spend a few hours reading the beginning of Mein Kampf - a book that is banned in most of Europe - and see the world has become precisely what Adolf Hitler said it would. If you want to disagree with his methods, so be it. But don't pretend the decadent wasteland of Amerika was not anticipated in the past. Such deception merely opens the door to another demagogue.

[thriftyandboringinohio]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

...One need spend a few hours reading the beginning of Mein Kampf - a book that is banned in most of Europe..

Not really true.
In Europe, it's banned in Austria, Netherlands, and Romania. Hardly most of Europe.

Also banned in Russia, People's Republic of China, and Argentina. That's 6 countries worldwide.

[zoog]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

...

where's the demand? except from the small top part of the hourglass for luxury goods?

Hourglass? It's a bowling pin!



With plenty of red tape between the classes!!

A squished bowling pin at that


(source: ssa.gov annual net compensation data)

[Chris Coles]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

A squished bowling pin at that


(source: ssa.gov annual net compensation data)

That base of the squished bowling pin above; 24.3 million desperately deprived struggling underpaid employees presents by far the greatest opportunity to improve the economic capacity of the nation. And I am not by any measure, the first individual to suggest that increasing the prosperity of the bottom, grass roots of society, is the way to go.

[Chris Coles]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

i assume this is the timing for the onset of the next crisis. i rather doubt all the imbalances will be righted in an instant, or a year.

Add me to that list.

[ASH]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

i assume this is the timing for the onset of the next crisis. i rather doubt all the imbalances will be righted in an instant, or a year.

With luck. There is something of a dichotomy between the "inflation is a process -- not an event" narrative, and the use of terms like "the end" and talk of an accident "that could happen at any time". The gradual scenario is a reserve currency decommissioning process that plays out over decades. That is the long term big picture that is assured to happen. That is the process that EJ says we are already a decade or more into; it isn't a process that is going to start within 2 years. But EJ has also been talking about the possibility of a sudden stop -- a currency accident that could befall us in the midst of the long-term process. Without an accident, imbalances are righted over an extended period of time; in the event of a sudden stop, the period of adjustment will have to be much shorter. I hope EJ will correct me if I'm reading too much into his diction, but I think the simplest interpretation of phrases like "final years" is that he's talking about ka-POOM.

[Chris Coles]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

Ash, from my understanding, yes, there may be a sudden collapse; but the end effect would be to "bottom out" so to speak and in which case, once arrived at, there would not be a equally sudden rebound. Instead, a very real likelihood of a prolonged period of substantially lowered expectations followed by a long, steady period of many decades of growth from a reduced starting point. Perhaps much like the period between the late 1940's to the early 1970's.

[gnk]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

I say we also look to history as a guide. We look at what ended Bretton Woods and look for a similar comparison in today's crisis.

Our trading partners, that had surplus dollars, were increasingly becoming uneasy for about a decade prior to 1971. They were redeeming gold at an alarming rate in the mid to late 1960s. The turning point was the collapse of the London Gold Pool in 1968.

So.... I would put the turning point for the questioning of today's system at 2007-2008. Remember Hank Paulson going to Asia to reassure the Chinese that their agency debt investments were safe? That they should continue buying agency debt (all Ponzis need participation to be viable). Remember John Thain of Merrill Lynch going to the Middle East, and I believe Asia, peddling US financial debt to save his firm? They were not that successful. That's the turning point, IMO.

The eastern nations today are in the same, if not worse position than our European trading partners of the 1960s. These eastern nations, from the Middle East to Asia, got badly burned with agency debts, Bear and Lehman investments, etc... Now they are focusing on US Federal debt and wondering if this is Act II of a bad movie. The BRICS are entering into non-dollar denominated transactions. The US Dollar debt based system is collapsing right now, IMO - but it is a process.

I would say that the increasing non-dollar denominated trade is the #1 threat to the functioning of the US Treasury market. To me, it is similar to the failure of the London Gold Pool. The London Gold Pool collapsed in 1968, and three years later, the gold window was closed.

In my view, we are 4 years into the last phase, starting with 2007/2008 as the turning point. To me, 2007/2008 can be compared to 1968. Remember, in 1968, the London Gold Pool, used to suppress the price of gold to $35 an ounce, collapsed. In 2007-2008, the secondary market for US Agency debt which had higher returns than US debt collapsed. But unlike gold redemptions, a US debt based system (whether it is agency or gov't) can last longer under crisis mode. Whereas in a gold crisis, gold reserves get depleted fast, in a debt based system crisis, one can always print more money to service debt and prop up the market. The rate of dollar value depreciation is slower than the rate of gold reserves depletion.

Just my opinion. But I think ultimately, China forces the issue somehow, openly or behind closed doors.

But one things has been left out of the discussion - the SDR.

[jk]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

in another thread i suggested than an intermediate "solution," less radical than going to a purely gold-backed system, would be an sdr in which the u.s. dollar would be a major component, but also containing commodities and a pm component.

[gnk]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

A purely paper/fiat/debt based SDR including the RMB only spreads around the "exorbitant privilege" of having a reserve currency and appeases China to a degree, but that however, does not address the severe surplus/debt imbalances between East and West, particularly, the US debt. I have said, before, short of an all out global war, only revalued gold can rebalance the world economy.

So I would agree with you that a SDR would need some real asset backing.

I also see an interesting long term development. After WWII, the US had 22,000 tons of gold. A large part of that migrated to its major trading partners - mostly in Western Europe. Now I see the next stage involving another gold migration - from the US/EU to Asia/BRICS.

The world economy can then rebalance itself, but the free ride the West enjoyed will be over. The West will have to re-earn that gold thru trade. There is no way around that, regardless of the solution chosen.

[c1ue]

Re: Global Monetary Meltdown - Part I: The accident that won't wait to happen - Eric Janszen

I have said, before, short of an all out global war, only revalued gold can rebalance the world economy.

The only way revalued gold can rebalance the world economy is if there is a debt jubilee right before the change.

I sincerely doubt that would happen.

Secondly even with a debt jubilee, a conversion to 'hard' currency or even 'firm' currency like an SDR with PM component still results in a massive recession in the US, UK and much of the EU. This blows back to Asia immediately.

IMO, no one whatsoever in the present situation has any desire to change anything of significance - either in Asia or the West.

The BRICs will just continue their growth, including inter-BRIC and inter-BRIC trade partner trade, which is anyway significantly divorced from the mainstream US dollar world reserve currency trade. When/if a balance of payments crisis arises in the West, the BRICs will get hurt, but the alternative systems will provide a growth path out whereas the West will have to do it the hard way: massive Latvian style cuts combined with decades of recession.